Interfor Corporation

My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to the Inter4 Quarterly Analyst Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Thank you. Mr. Fillinger, you may begin your conference.

Thank you, operator, and thank you, everyone, for joining us this morning. With me on the call, I have Rick Posbon, Executive Vice President and Chief Financial Officer, and Bart Bender, Senior Vice President of Sales and Marketing. I'll start off by providing a brief recap of our quarter, provide some comments on the market outlook and several strategic initiatives. before passing the call to Rick and Bart. Turning to our quarter, our adjusted EBITDA was a loss of $51.4 million during a very challenging quarter that was impacted by weak pricing. To be clear, current pricing is generally below industry break-even levels, which is simply not sustainable for any extended period of time. With that being said, we have a more positive outlook for the year ahead than we did a year ago. We feel housing demand has been relatively strong in the face of rising interest rates. Rates appear to have peaked and builder sentiment is improving and R&R remains steady. On the supply side, inventories at both the producer and supply chain level are low and operating on a just-in-time basis for shipments. And continued production curtailments are anticipated from the industry, especially if current prices continue. Despite our positive outlook, We intend to manage and continue to manage the business and our balance sheet conservatively. We have reduced our 2024 capital spending from our preliminary guidance set in November to $90 million. We think this is a disciplined move. With our internal CapEx team, we're able to quickly make adjustments, providing us with flexibility and control. At the same time, we continue to make good progress on the monetization of our BC Coast tenures. These and other notable cash inflows, such as tax refunds, that Rick will discuss or expect to help bolster our financial position over the next year, even without any meaningful operating earnings. And I'll turn the call over to Rick, who will walk you through the financials.

Thank you, Ian, and good morning all. Please refer to cautionary language regarding forward-looking information in our Q4 MD&A. From a high-level perspective, InterFOR's Q4 financial results reflect further weakening of lumber markets as supply continued to outweigh demand. This weakening is evidenced by the framing lumber composite price dropping 12% quarter over quarter. Lumber prices are currently at an unsustainable level, as a significant portion of the North American lumber industry is likely generating negative EBITDA margins. I'll leave it to Bart to discuss the supply-demand fundamentals in some detail, but speaking from a macroeconomic perspective, there are encouraging signs that haven't yet translated into increased demand and higher lumber prices. The trend of moderating inflation across the North American economy now has central banks contemplating interest rate cuts in the near term. We've seen this reflected in significantly lower 30-year U.S. mortgage rates over the past three months. Lower mortgage rates will benefit housing affordability, not only in terms of reduced interest costs, but also in terms of supporting an increased supply of existing homes for sale. Turning to Q4 earnings, Interfor generated an adjusted EBITDA loss of $51 million. on total revenue of $786 million. Compared to the previous quarter, revenue benefited from a slight 4% increase in lumber shipments, which was more than offset by a 9% decline in the average realized lumber price. On the cost side, reported production costs on the unit of lumber basis were essentially flat quarter over quarter. However, Q4 costs included a $14 million increase in the provision against inventories, whereas the prior quarter included a $3 million reduction. The net loss of $169 million in Q4 reflects several non-recurring charges, including an $85 million provision to facilitate the ongoing monetization of our coastal BC operations, and a $56 million charge to impair certain operating assets in the Pacific Northwest, which was driven by higher log costs and ongoing market weakness. In terms of cash flows, there was a $22 million outflow from operating activities in the quarter, as negative operating earnings were partially offset by the collection of tax refunds totaling $30 million. Combined with capital expenditures of $40 million in the quarter, our net debt to invested capital leverage ratio ended the quarter at 32.8%. Looking ahead regarding capital allocation, we're taking a conservative approach in light of the current lumber market weakness. Our primary focus over the course of 2024 will be on managing our balance sheet conservatively. In line with this focus, we revised our expected capital expenditures for 2024 down to $90 million from $140 million previously budgeted. Additionally, we expect the collection of tax refunds totaling $68 million and the ongoing monetization of our coastal BC forest tenures over the course of 2024 to benefit our financial leverage. To wrap up, Interfor's Q4 results reflect significant lumber market weakness, which we view as unsustainable for the industry as a whole. Fortunately, Interfor has a high-quality, diversified portfolio of operations and is well-positioned to successfully navigate through this period of supply and demand, adjusting towards a sustainable balance. That concludes my remarks. I'll now turn the call over to Bart.